This under-the-radar labor market chart is scaring economists right now

• The Beveridge curve signals potential US labor market deterioration despite steady unemployment.
• Economists warn that falling job vacancy rates could mean rising unemployment.
• Indicators like the jobs-workers gap and labor differential suggest recession risks remain elevated.

Is the US labor market in the calm before the storm?

One model that's closely followed by academics but which tends to fly under the radar for most investors suggests that could be the case — and it's spooking some economists.

While the December nonfarm payrolls report, released on Friday, showed that the US added 50,000 jobs last month and the unemployment rate ticked down to 4.4% from 4.5%, the so-called Beveridge curve indicates that the labor market could be on the verge of a quick deterioration.

The Beveridge curve considers the relationship between the unemployment rate and the number of job openings relative to the amount of overall jobs (the job vacancy rate) over the course of a multi-year labor market cycle. As the job vacancy rate continues to fall, signaling it's more difficult to find work, the unemployment rate eventually reaches a tipping point and begins to rise sharply.

Using 2022 or 2023 as the top of the most recent labor cycle — when the job vacancy rate was around its peak — we can see that conditions are ripe for unemployment to trend upward, and the job vacancy rate has dropped to 4.6%.

The current cycle is shown in teal dots in the chart below, shared in December by Neil Dutta, the chief US economist at Renaissance Macro Research, who is warning that downside risks to the labor market are higher than upside risks for inflation.

So far, both hiring and layoff rates have been low, allowing unemployment to stay range-bound. But if layoffs were to increase, the scarce number of jobs on the market could put the economy into trouble.

Matt Bush, US economist at Guggenheim Investments, which oversees more than $357 billion in assets, told Business Insider on Friday that while he thinks the labor market will remain intact in the months ahead, the prospect of rising unemployment is still a threat that investors should be paying attention to.

"I would say that recession risk is still probably well above normal, given this fragility in the labor market," Bush said. "Because hiring is so low right now, it wouldn't take a big increase in layoffs to see unemployment rise pretty meaningfully."

He continued: "So because of that, any even somewhat small shock to business confidence could see a pick up in layoffs and a pretty quick and sharp rise in the unemployment rate. It's not our base case, but it is a key risk that we're watching."

Peter Berezin, the chief global strategist at BCA Research, recently expressed his concern around another indicator closely tied with the Beveridge curve: the ratio of jobs to workers. It is now negative, meaning there are more workers than there are total jobs (filled or not).

"The US labor market has reached a critical threshold: The jobs-workers gap has turned negative, signalling that the economy has reached the flat side of the Beveridge curve," Berezin wrote in a LinkedIn post. "A further decline in job openings could push it into recession."

There are other signs that labor market conditions are set to worsen. The unemployment rate recently ticked above its three-month moving average, which has only occurred before or during recessions dating back to the 1940s.

The Conference Board's "labor differential" measure, which compares the number of survey respondents who say jobs are "plentiful" versus "hard to get," is also trending higher. The metric tends to move alongside the unemploymnet rate.

But for now, at least, investors can take solace in Friday's steady unemployment number despite a relatively low print of 50,000 jobs added, Bush said.

"It's reassuring that we're not seeing this spiral where lower job growth leads to lower spending and that leads to further layoffs and that sort of recessionary snowball effect," Bush said. "And I think it's because labor supply is also cooling alonside labor demand."